Final answer:
The two rules for performing impairment calculations under U.S. GAAP are the recoverability test and the fair value test.
Step-by-step explanation:
The two rules for performing impairment calculations under U.S. GAAP are the recoverability test and the fair value test.
The recoverability test determines if the carrying amount of an asset can be recovered through future cash flows. If the future cash flows are lower than the carrying amount, an impairment loss is recognized. For example, if a company's machinery has a carrying amount of $100,000 but the estimated future cash flows from using the machinery are only $90,000, an impairment loss of $10,000 would be recognized.
The fair value test is used when the recoverability test indicates impairment. It compares the fair value of the asset to its carrying amount. If the fair value is lower than the carrying amount, an impairment loss is recognized. For instance, if the fair value of the machinery mentioned earlier is determined to be $80,000, an additional impairment loss of $10,000 would be recognized.